Emerging Leaders

May 2011

Zeti Akhtar Aziz, Governor, Central Bank of Malaysia

“It is a lonely job that requires nerves of steel.”

— Zeti Akhtar Aziz, Bloomberg, 2010

Zeti Akhtar Aziz, a 25-year veteran at the Central Bank of Malaysia actually may have a reason to feel lonely at the top. She is the first woman from Malaysia, in fact from anywhere in Asia, to head a central bank. And the formidable lady certainly has shown a steely resolve, judging by some of her seemingly unorthodox policy maneuvers during her long stint at the bank.

Elevated as acting governor by the then prime minister Mahathir Mohamed in September 1998, Zeti cut her teeth during the Asian financial crisis that ravaged the region. Thinking on her feet, she found in the crisis an opportunity to put into practice her doctoral thesis on managing international capital flows, penned at the University of Pennsylvania. Zeti did a good job by putting caps on foreign-exchange transactions and followed up by pegging the ringitt to the dollar. Her out-of-the-box thinking evidently was not well received by the Western world and the International Monetary Fund, which termed the policy response “a step back.” Still, the IMF staged a dramatic turnaround recently when the Washington-based lender said the curbs on capital flows could be used as a legitimate tool by some governments, in a tacit acknowledgement that Zeti did the right thing back then.

Born to a well-known Malaysian intellectual and a journalist mother, Zeti, who is known to be demure and soft-spoken, is married with two children. The recent nomination of Zeti, 62, as the governor of the central bank for another term of five years has shown that she is held in high esteem by the successive governments in power. The Malaysian investment community too raised a toast to her continuance at the helm of affairs.

It is no small feat that Zeti enjoys the confidence of both the ruling administration and the general public. Though the Malaysian economy contracted during the financial crisis of 2009, it is widely believed that the impact was minimal, thanks to the country’s resilient banking system. In fact, Zeti took the global markets by surprise with her decision to hike interest rates in March 2010, which set the trend for bigger Asian economies such as India and China. Her early days at the bank were marked by a phase of consolidation in the sector, which brought down the number of domestic lenders to 10 from 54 earlier. Zeti’s tenure at the bank marked the evolution of the Malaysian financial system. A strong votary of Islamic finance, both at home and abroad, Zeti has also emerged as the voice of Asia at various international financial forums. Under her initiative, a new banking legislation was enacted in 2009, which gave more autonomy to the rate-setting panel and interestingly, also made her eligible for re-appointment. The new law could also ruffle some feathers in the legal fraternity as it proposes to make it mandatory for Malaysian courts to consult national sharia advisors in matters related to Islamic finance. Zeti may want to champion the cause of Islamic finance, but she is also a vocal proponent for lifting caps on foreign investments in the country’s banking and insurance sectors.

“

I was in charge of managing the ringitt at that time (Asian crisis). It was the most challenging experience I have ever encountered.

”

— Zeti, Malaysian Business, 2005

The accolades she has received during her eventful public life attest to the high respect she commands in the financial world. Global Finance magazine rated her among the best central bank governors in 2010. She was adjudged the “Central Bank Governor of the Year” by Washington-based publication Emerging Markets in 2010. Zeti was also honored with the Lifetime Achievement Award last year for her tireless efforts to promote Islamic finance worldwide.

Zeti’s detractors point out that despite her best efforts to tame inflation, the gauge still remains high at 3%. Despite inflationary pressures, Zeti left the rates unchanged this month to boost growth, but hinted at a rate hike later in the year. The governor recently admitted that rising inflation in some of its Asian trading partners could affect the Malaysian economy in the second half of 2011. Rising commodity and energy prices may also slow the country’s growth rate to between 5 to 6% this year, she said. Falling foreign investments into Malaysia compared to the heydays of the 1990s is a big worry for the country, especially in the highly competitive Asian region. However, her pioneering decision to raise rates last year gave Indonesia a head start as the economic recovery took shape, a fact which is admitted by financial professionals.

Besides her dynamic policy shifts, Zeti’s relentless pursuit of ideas that are close to her heart also makes her stand out from the crowd. Zeti used to spend hours on end monitoring world markets during the Asian financial crisis. A decade and more later the focus still has not been lost, as the governor said the bank is currently keeping a close watch on short-term capital flows.

Rising through the central bank’s ranks to the top post and receiving successive tenure extensions is an achievement by any yardstick. Not one to rest on her laurels, Zeti has her task cut out for the extended term: to oversee the implementation of Malaysia’s second financial masterplan to be launched in June. For Zeti, who is the second-longest serving governor of Malaysia’s central bank, this latest assignment may offer something new to chew on.

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